HP pays out £55m to resolve stock backdating action

HP has agreed in principle to resolve the stock-options back-dating suit facing Mercury Interactive, a company it acquired in 2006.

Agam Shah
October 17, 2007

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HP has agreed in principle to resolve the stock-options back-dating suit facing Mercury Interactive, a company it acquired in 2006.

The $117m settlement needs to be approved by the judge presiding over the case at the US District Court for the Northern District of California, HP said. The case was filed by the Mercury Pension Fund Group, a group of pension funds that hold Mercury stock, which alleged former Mercury Interactive executives improperly backdated stock options.

The settlement was six times higher than any previous backdating settlement, according to a statement from Labaton Sucharow LLP, the law firm representing Mercury Pension Fund Group.

HP acquired Mercury Interactive for $4.5bn in July 2006. That year, Mercury was forced to restate its earnings for fiscal years 2002 to 2004 as previous statements failed to recognise compensation from internal stock-option grants.

The US Securities and Exchange Commission probed Mercury's accounting in 2005 and questioned the company's handling of compensation based on backdated stock-option grants. A probe by a committee of Mercury's board revealed that over the past decade Mercury had incorrectly reported the dates of at least 49 stock-option grants, picking a date on which the stock price was lower than when the option was actually granted.

The investigation led to the resignation of then-CEO Amnon Landan, Chief Financial Officer Douglas Smith and General Counsel Susan Skaer.